Tax Deductions and Credits

As a caregiver, you likely pay for some care costs out-of-pocket. Because of this, you may qualify for tax benefits from the Internal Revenue Service (IRS). Tax rules are complex and can change. Be sure to get advice from your tax adviser or accountant before filing your returns.

Medical expenses

The person with dementia may be considered your dependent for tax purposes. If so, you may be allowed to itemize his or her medical costs. Generally, you can deduct only the amount of your medical and dental expenses that is more than 10 percent of your adjusted gross income. But if either you or your spouse was born before January 2, 1952, you can deduct the amount of your medical and dental expenses that is more than 7.5 percent of your adjusted gross income. Only expenses that have not been reimbursed by insurance can be counted toward the medical expense deduction.

Child and Dependent Care Credit

If you paid someone to care for the person with dementia so you could work or look for work, you may be able to claim the "Child and Dependent Care Credit" on your federal income tax return. If eligible, you would be allowed a credit of up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

To qualify:

You must have earned income

The person with dementia must be unable to physically or mentally care for him or herself

The person with dementia must be claimed as a dependent on your tax return

TIP: If you pay someone to come to your home and care for the person with dementia, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See IRS Publication 926: Household Employer's Tax Guide.

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Flexible spending account

If the person with dementia is a dependent under the tax rules, you might be able to use your own workplace flexible spending account (FSA). This money can cover the person’s out-of-pocket medical costs or dependent care expenses in some cases.

State tax credits

Many states have additional tax deductions or tax credits to provide financial relief to caregivers. These tax programs build on the federal tax credit, which reduces the amount of income taxes a family owes. Each state program differs by name and eligibility requirements.

AARP's Tax-Aide program provides free tax preparation and counseling information to all low and middle-income taxpayers, even if you are not an AARP member.

Note: This information is not intended as tax advice. The determination of how tax laws affect a taxpayer depends on the taxpayer's situation. A taxpayer may be affected by exceptions to the general rules and by other laws not discussed here. Therefore, taxpayers are encouraged to seek advice from a competent tax professional.